It’s common for older Australians to feel anxious about running out of money. After all, you’re particularly vulnerable to shocks as a retiree because the pool of money you’re drawing from isn’t benefiting from regular top ups by an employer. Below, we outline some of the biggest threats to your retirement savings, as well as what you might be able to do to keep your finances safe.

Inflation risk

As far as threats to your savings go, inflation is one of the more obvious and pressing. Even a modest increase in the cost of goods can cause the value of your retirement funds to drop over time.

And if recent history has taught us anything, it’s that inflation can persist for long stretches despite efforts by central banks to bring it under control.

When your retirement savings are finite and you’re no longer earning, it’s more important than ever to use smart strategies to manage inflation risk and protect your savings from being eroded.

Tips to help manage inflation risk:

• If high inflation strikes, try to be flexible with your spending habits and try to identify any non-essentials that you can do without.
• Don’t let your panic guide your investment decisions. Seeking out risky assets or industries in the hope they’ll allow you to beat inflation might not be the wisest decision.
• Top up your retirement savings if you can with extra contributions to super.
• Consider delaying your retirement plans or supplementing your income with part-time or casual work.

Market downturns and sequencing risk

Anyone with shares they actively monitor will know that volatility is a feature of the market that’s next to impossible to avoid. But if your only exposure to investing is through your super, you might not have built up a tolerance for the large market swings that many individual traders have.

Often people are so rattled by a downturn that they switch over their portfolios to more conservative options and unwittingly wind up crystallising their losses. Then when the market recovers, their super balances are worse off than if they had done nothing instead.

The stakes are especially high as you approach or enter retirement thanks to something known as sequencing risk. If you retire in a down market, you’ll be drawing down on your capital at a time when its value has fallen. This deprives your investments of the chance to recover, erases any future compound returns, and can potentially impact your super balance over time.

Tips to help deal with market downturns:

• Try to avoid making any hasty decisions in the face of market downturns.
• Take care not to mistime any big purchases. Many new retirees withdraw part of their super as a lump sum to pay off their mortgage or buy a new car. If this coincides with a market downturn, it could put a major dent in your super balance over time.
• Review the investment option your super is currently invested in to make sure you’re comfortable with the level of risk.
• If you have investments outside super, ask yourself if your portfolio is sufficiently diversified and suited to your risk profile.

Longevity risk

Thanks to better quality medical care and a general improvement in living conditions, life expectancy in Australia is much higher than it used to be. While this is certainly welcome news, it means you’ll have to stretch your savings over a retirement that could last as long as 30 years. Combined with the impact of inflation, you’ll really need to consider whether your retirement savings can go the distance.

Tips to avoid outliving your retirement savings:

• During your working years, try to make extra contributions to your super where possible. You can even claim a tax deduction if you submit a Notice of Intent form to your fund in time.
• Consider delaying retirement or returning to the workforce on a part-time basis so you have a chance to boost your savings further.
• Create a retirement budget to see how you can cut back on your living expenses before and after retirement
• Check if you’re eligible for other sources of income in retirement, such as the Age Pension.
• If you planned on giving your children an early inheritance, be mindful of how it might impact your lifestyle in retirement.

Medical costs

As you age, the amount of money you devote to medical costs tends to go up. Along with the regular expenses (such as medication and visits to the dentist), you might also experience health problems that require visits to specialists, surgery or overnight hospital stays. There’s also the matter of aged care (whether a residential aged care facility or in-home care), which can be a major blow to your budget.

Tips to help keep your medical costs low:

• Remember that the best cure is often prevention — try to live a healthy lifestyle and make sure to visit your GP regularly to get preventative screening tests done.
• Maintain an emergency fund to help cover any unforeseen medical expenses.
• Use the government’s Medical Costs Finder to get a clearer idea of the typical out-of-pocket costs for any surgeries or visits to specialists.

Scams

For many scammers, cashed up retirees represent the ultimate target, and fooling just one person can result in a massive payday. It’s important to remember that scammers don’t have to rely on digital hacks — sometimes all it takes is a message that’s just friendly or urgent-sounding enough to get you to lower your guard.

Tips to stay safe from scams:

• Be sceptical of any messages you receive that try to rush you into doing something — like changing your password or moving money from one account to another — even if they purport to be from your bank or another trusted institution
• Be wary of people who contact you out of the blue to strike up a conversation, especially if they start asking for money to get out of a bind or spruiking investment opportunities.
• Keep in mind that there are strict rules around accessing your super before you’re eligible, so don’t trust strangers who claim to be able to help you withdraw it early.
• Often scammers impersonate well known organisations, such as your super fund, the ATO or a utilities provider. The safest way to check whether a communication you receive is authentic is to contact the organisation using the published phone number on their website and ask them whether they have contacted you.

Retirement often forces people to put their spending habits under the microscope in ways that they didn’t during their working years. While you might find that you’re not spending as much in some areas, there’s every chance that new expenses will crop up. Here are just a few that you might encounter.

Boomerang children

Whether they’ve moved back home or never actually left in the first place, it’s common for young adults to be living with their parents these days.

While this might be a welcome development, it often means larger grocery and utility bills (unless, of course, your children are able to chip in).

Assisting your children in other ways

Even if your children have left the nest and show no signs of wanting to return, there’s always a chance that you’ll be asked to provide for them in other ways. That might mean paying for weddings, uni fees, and even chipping in once they have children of their own.

Perhaps the biggest one, however, is helping them to buy a home. Home prices have risen to eye-watering heights, and depending on how much help your children need to get a foothold in the market, your generosity could have a material impact on your retirement.

Providing for elderly parents

It’s not just your adult children you might be called on to assist. Australians are living much longer than they used to, and if your elderly parents are still alive they might need support too. This might mean letting them move in with your family, hiring a carer, or making senior-friendly modifications to their home.

Divorce

For many retirees who go through a divorce, the financial repercussions are sometimes greater than what younger couples experience. That’s because older divorcees generally have more to lose in divorce settlements and less time to do the difficult work of rebuilding their financial lives. Loss of the family home can also be difficult, especially considering how unfriendly rental markets can be these days.

Higher than expected inflation

Even low rates of inflation can have a large impact on the purchasing power of your money over time. If high inflation strikes, it could force you to cast aside a lot of the plans you made leading into retirement. And if recent history has taught us anything, it’s that periods of high inflation can persist for much longer than governments, central banks and everyday people are comfortable with.

Unexpected medical costs

Medical expenses tend to increase as we age, and while the more routine healthcare costs (e.g. medications and visits to specialists) might be easy to manage, a sudden injury or diagnosis of serious illness could easily throw your finances into disarray.

Aged care

Even if you had plans to “age in place” instead of entering aged care, life can throw you a curveball and force you to change your mind. The good news is that there are residential aged care options that are relatively low-cost (and financial assistance from the government is available if you’re eligible). However, you might prefer a more well-equipped facility with all the bells and whistles, which can cost significantly more.